The oil and gas industry is at a crossroads as global oil demand may be peaking sooner rather than later while climate change awareness and legislation accelerate dropping demand. European oil and gas companies appear to be adapting faster than their American counterparts as they make strategic investments and orient their businesses to deal with more aggressive regulatory environments and increased pressure from investors to diversify. It remains to be seen which model will prove more successful in the long run, but European companies appear better positioned to deal with a more severe contraction in oil demand and increased climate-related regulations.
 
BP laid out a bearish case for future oil demand in its annual energy outlook published Sept. 14, in which even its bullish outlook sees peak oil demand as already having arrived, and forecasts that for the next two decades, demand will remain virtually plateaued at current levels. 

• Under BP's most optimistic scenario, oil demand would grow from 97.2 million b/d in 2018 to 97.8 million b/d in 2030 — an average annual growth of just 0.05 percent per year, or roughly 50,000 b/d per year. 
• A slowdown in growth is a major structural change for an industry that saw average annual growth of 1.4 percent annually between 1995 and 2018, or about 1.2 million b/d per year. 
• Oil consumption will continue to grow in Asia and the developing world, but this will be offset by sharp declines in Europe and the United States, which each could see average annual declines of more than 1 percent.
• New sources of oil production will still need to be developed, as the global oil decline rate is around 5 to 7 percent, and new investment will be needed to meet even plateaued demand — but the lack of growth could curb prices. 

Investor sentiment toward climate change is driving corporate changes as investors are becoming more acutely aware of climate change-related risks to their investments; oil and gas companies are a focal point of this shift. With oil demand peaking and the long-term prospects for oil demand growth not optimistic, oil and gas companies are going to need to expand into other areas of business in order to represent long-term value even though such changes may require reducing dividends and profit margins in the short and medium terms. BlackRock and Vanguard, the world's two largest asset managers, have become more aggressive in trying to force companies in which they invest to more proactively adjust for climate change-related impacts to their business models, although not as much as many climate activists had hoped. 
 
While BP's assessment is a bit more pessimistic than other oil companies, its official view corresponds to the aggressive changes underway at the British company to focus its efforts away from the oil and gas industry and toward green technologies. When Bernard Looney took over as BP's CEO in February 2020 he said that "we need to reinvent BP," and that the company needed to target net-zero emissions by 2030. In August, BP announced a plan to transform the company from an integrated oil company to an integrated energy company focusing on low carbon energy. Key targets include:

• Increase low carbon investment by eightfold by 2025.
• Reduce oil and gas production by 40 percent by 2030, from 2.6 million barrels of oil equivalent per day to 1.5 million boe/d.
• Cease new exploration activities in countries where BP does not have a footprint.
• Cut emissions in BP's operations by 30 to 35 percent.

Although BP may be targeting a faster and more expansive transition, increasingly aggressive EU, Norwegian and British climate strategies are driving its European peers to make similar choices. The European Green Deal aims to make the Continent climate neutral by 2050, and while the European Union will struggle to hit all of its aggressive targets, enough headway will be made to force oil companies with extensive commercial exposure to European markets to adapt their business strategies accordingly and invest in more green technologies. 

• Shell, Total and Repsol are all targeting net-zero emissions by 2050.
• Eni is targeting 80 percent reductions in emissions by 2050 and reducing net carbon intensity of energy production by 55 percent by 2025.

U.S. supermajors Chevron and ExxonMobil have not made as aggressive of pledges, as U.S. climate policy and targets are not as ambitious as Europe's are, and they will likely continue lagging their European peers even though eventually they will need to adapt because of growing pressure from investors and an eventual strengthening of U.S. climate targets. Neither Chevron nor ExxonMobil has explicit targets for reducing emissions by 2050. Instead of backing a robust green energy plan, U.S. President Donald Trump has sought to bolster the hydrocarbon and coal industries against renewable competition and is in the process of withdrawing the United States from the Paris Agreement. A President Joe Biden and the Democrats would return the United States to the Paris Agreement and renew U.S. commitments toward low carbon energy targets — but only if they gained control of the Senate can they push through an ambitious plan similar to the EU plan.

The more accelerated push by European companies positions them to weather the decline in oil's relevance and demand under a scenario similar to the one BP has laid out, but leaves them exposed to another scenario where peak oil demand occurs beyond 2030 and investments into green energy flop due to continued significant competition from hydrocarbons. BP's plans to cut hydrocarbon production substantially within a decade is the most aggressive and explicit medium-term change envisioned by a major Western oil company. But they also represent necessary and realistic targets over the next decade that other oil companies will need to implement as a steppingstone to longer term goals similar to BP's goals. Some of BP's European counterparts likely will eventually introduce similar explicit commitments. Outright production-cut targets on the order of 40 percent in a decade would require a significant and quick transition into the renewable and alternative energy sector. While large oil companies have the deep pockets necessary to attempt such a transition, they will run into significant competition from other industrial conglomerates like GE. If the profit margins are reduced due to intense competition and oil demand growth is slightly stronger than anticipated, they will be unable to return or maintain production volumes to take advantage of higher potential prices as quickly. 
 
Competitors who do not follow BP's footsteps, however, will be more significantly exposed if BP proves correct. Western integrated oil companies are more likely to be affected by potential declines in prices and in demand than their Asian and Middle Eastern competitors. While opportunities to buy up assets of smaller companies that go under due to financial pressure would exist, Middle Eastern and other state-owned oil producers would remain cost competitive and are not structured to diversify away from oil production — and so would seek to protect their market share fiercely. Moreover, demand growth for refined products would decline significantly in the United States and Europe, the markets where Western integrated oil companies sell most of their refined products, while demand growth would likely still be occurring in Asia. Middle Eastern oil companies are attempting to build out their refining capacities using their own products as feedstock, and Western refiners would face a significantly competitive market in Asia from Middle Eastern oil companies and Asian refiners.